How to create a puffy looking mesh?
Try using a displace modifier with a procedural texture:


Add a cube (&#8679; ShiftA)
Add a subsurf modifier (&#9096; Ctrl5) (where 5 refers to the number of viewport subdivisions.)
Add a displace modifier, and click New texture:



Then click the properties icon on the far right of the button to go to the texture settings for the new texture.
Set the type to Voronoi:



I found that using Distance squared gives more rounded looking puffs, which might be what you want.
Back in the modifiers panel, reduce the strength of the displace modifier to some negative value so that the puffs are convex instead of concave.


Optionally model the cube into a shape approximately how you want the wool to be, and add a second displace modifier for larger displacements (you can use object coordinates and a scaled empty to make the texture larger):




Result: